Units or houses: the eternal investment question

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Should you invest in a house or a unit? DPN explains the pros and cons of each.

With data from CoreLogic and more than 20 years of experience in observing the property market, DPN offers insight for investors as to which choice produces the best long-term returns.

Units

According to the ABS, single-person households are projected to increase sharply over the next decade. As more people want the convenience of living in or near cities, units offer a practical choice.

The pros of units:

  • Lifestyle factors, such as proximity to work, cafes and restaurants.
  • Maintenance is taken care of by the body corporate, therefore less individual time and effort is required than with houses.
  • Units are cheaper than houses in many cases, so the entry point is lower, with less of a deposit needed.

The cons of units:

  • Many capital cities already have an oversupply of units, which leads to rental drops that affect mortgage payments.
  • It’s harder to get loans for smaller studio units due to their limited appeal impacting resale values.
  • Unlike a house and land, investors can only do minimal renovations on units, subject to structural approvals from the body corporate.
  • Units are subject to strata fees, unexpected levies and special taxes.
  • Unit investors don’t benefit from land appreciation.

 

 

Houses

All data shows that houses generally accrue greater long-term capital gain than units. As an example, the capital gain for Sydney over the past 25 years equates to a 7.6% annual growth rate for houses. For units, the annual growth rate was lower at 6.3%.

The pros of houses:

  • Houses come with valuable land ownership which always appreciates, therefore both the land and the building itself attract capital gain.
  • Houses offer investors the ability to increase appeal by making structural changes or building a brand new home, to charge higher rent and increase overall capital gain.
  • Regional areas are experiencing residential growth booms that benefit today’s investors.

The cons of houses:

  • Older houses may incur more costs for maintenance than units. However, building a new house requires minimal repairs and investors qualify for depreciation tax breaks.
  • Houses generally require bigger deposits than units. This is dependent on the location though, as regional houses are often cheaper than city units.

The key is to conduct thorough research, as there isn’t just one property market, and there are pros and cons with each choice. However, data clearly shows that houses deliver the best long-term returns when you select the right house and area.

For more comprehensive information, see DPN’s article: Units or houses: the eternal investment question.

 

Disclaimer: Chan & Naylor take no responsibility for the accuracy of any research material of contributors to our newsletter. Contributions to our newsletter such as this article, “Units or houses: the eternal investment question”, are meant to be educational only and Chan & Naylor does not endorse any promotional material promoted in their articles. Readers should do their own research to determine the accuracy of their material.

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